Rooting out EBT fraud more complex than it seems

In a period of just under three years, Maine welfare recipients swiped state-issued benefits cards more than 3,700 times at bars, taverns and smoke shops in Maine. Thousands more transactions took place at out-of-state stores, including “one liquor store in New Hampshire (that) had more than a thousand transactions totaling nearly $8,000,” Gov. Paul LePage said in his weekly radio address Saturday.

Instead of offering clear-cut examples of welfare abuse, however, the LePage administration’s list arguably illustrates why the national campaign to crack down on questionable purchases with welfare funds is so difficult – and why politicians’ black-and-white portrayal of alleged welfare abuses often differs from the fuzzy reality.

A case in point is that “one liquor store in New Hampshire,” in reality a convenience store never named by LePage but identifiable in state reports.

Located in Somersworth, N.H., just across the bridge from Berwick, Borderline Beverage is popular with Mainers who stop by for sodas, chips, groceries and, of course, a six-pack of beer or a pack of smokes.

Data from the LePage administration show that Maine welfare recipients swiped their Electronic Benefits Transfer cards – the EBT debit cards used to access cash through the federal Temporary Assistance for Needy Families program – at least 1,070 times at Borderline Beverage’s check-out counter or ATM between January 2011 and November 2013.

Because of a fatal flaw in the EBT reporting system, Maine and New Hampshire have no idea what those shoppers purchased. And even if it was beer or cigarettes, neither state prohibits residents from making such purchases with EBT cards at the vast majority of stores, although lawmakers in both states are likey to debate such changes this year.

Both states prohibit EBT usage at stores where 50 percent of visible inventory is composed of alcohol (New Hampshire) or alcohol sales make up 50 percent of all revenue (Maine). Officials in neither state could say Friday whether the convenience store met those legal thresholds, however.

When asked about the transactions, an employee, Sam Patel, said the store sells “only food, groceries and soda” to EBT card users, not alcohol or cigarettes.

Those are just a few examples of the challenges facing lawmakers from Maine to Hawaii as they attempt to comply with new federal laws intended to curb inappropriate use of TANF dollars designed to help low-income families pay for everyday needs.

In fiscal year 2011, states used 71 percent of federal TANF dollars to help low-income families pay for child care, job assistance and child welfare programs, according to a June 2012 study by the nonpartisan U.S. Government Accountability Office. States disbursed the remaining 29 percent – more than $4.5 billion worth – as “basic assistance,” which would include cash assistance available through an EBT card or deposited directly into a person’s bank account, the report stated.

But as the GAO report noted, “preventing unauthorized transactions can be time-consuming and is impaired by flaws in available transaction data” that would likely require “significant resources” to correct.

Statistics on misuse of TANF funds – which carry far fewer restrictions than food stamp funds also loaded onto EBT cards – are difficult to come by and often subject to dispute. State administrators and welfare fraud investigators acknowledge, however, that a certain amount of abuse is inevitable in a program designed for flexibility in order to help struggling families pay for everyday needs.

“The program is intended to help families, but beyond that we don’t have any control,” said John Martire, executive board member of the California Welfare Fraud Investigators Association, a state at the forefront of TANF enforcement.

Sometime this week, the LePage administration is expected to unveil several proposals intended to tighten up Maine’s regulations regarding what cannot be bought with TANF money and where purchases can be made. The changes aim to expand upon a 2012 law prohibiting the use of EBT cards at gambling facilities, strip clubs, and stores where 50 percent or more of the revenue comes from alcohol sales.

According to administration officials, options under consideration include:

• Banning purchases of certain items, such as alcohol or tobacco.

• Imposing percentage limits on the amount of TANF money available for cash withdrawal at ATMs.

• Exploring options for restricting use of Maine-issued EBT cards in other states.

Similar proposals aimed at reducing EBT card misuse are being introduced in statehouses nationwide as states rush to demonstrate to federal officials that they are serious about addressing abuse and close significant policy loopholes.

Yet some observers question whether the problem is big enough to merit so much attention?

“It’s obviously a very tiny dollar amount compared to the amount that people receive,” said Elizabeth Lower-Basch, policy coordinator at the Center for Law and Social Policy, a left-leaning organization active on poverty issues. “Some people say any amount is too much, ... but I think the challenge is the amount of time and money that is going to be spent, is that disproportionate? And in this case, I think it is.”

Mainers use EBT cards to make roughly 50,000 transactions every month. Media reports and critics of the LePage administration’s welfare reform agenda pointed out that the 3,700 transactions highlighted in the governor’s report would constitute just two-tenths of 1 percent of all transactions during that period.

LePage administration officials responded that the 3,700 transactions did not represent transactions at all bars, smoke shops and casinos in Maine or other states.

“There is much more fraud in the data than the tiny sampling we provided,” LePage spokesman Peter Steele wrote in an email.

Maine’s current law places the onus on card users to avoid prohibited locations. The owners of several bars in the Portland area whose establishments appeared within that “sampling” said they do not accept credit cards so any EBT transactions were at their ATMs.

There is no question that abuses have occurred in every state.

A 2010 investigation by the Los Angeles Times using California state documents found more than $69 million was spent or withdrawn outside the state, including at casinos in Las Vegas. Likewise, EBT cards were used to withdraw more than $87,000 from cash machines at a Michigan casino in a 12-month period.

Responding to the growing numbers of media reports about the abuses, Congress in 2012 passed a bill requiring states to enact policies prohibiting the use of EBT cards at liquor stores, casinos, strip clubs or other adult entertainment venues.

States were given two years to comply with the requirement or face the possibility of a 5 percent cut in federal family assistance grants.

Two years later, many states have enacted restrictions on where and how EBT cards can be used and are required to file the first formal reports on their progress by Feb. 22. But as the alleged abuses detailed by LePage’s office illustrate, enforcing those tougher laws is often harder than passing them.

“If an individual is predisposed to go to a casino and they can no longer get cash from the casino ATM, they are just going to get cash before they get on the bus with their friend,” said Thomas Ryan, a welfare investigator in New York who serves as the president of the United Council on Welfare Fraud. “I just feel this law is nothing more than a feel-good law to make legislators’ constituents feel warm and fuzzy that they have done something to fight welfare fraud.”

States have not received much guidance from the federal bureaucracy, either.

Congress ordered the U.S. Department of Health and Human Services to set the criteria for determining whether states complied with the new federal mandates. But the DHHS rule establishing the criteria by which states will be judged is still in draft stage and has yet to be published.

So far, states have taken a variety of approaches to the issue.

Following California’s lead, Massachusetts is working with the vendor of its EBT card to block access to cash machines in prohibited locations – a time-consuming process requiring ATM companies to manually change coding in each machine. Additionally, Massachusetts can withhold benefits from individuals who use a card at a prohibited location and state investigators recently began bi-weekly monitoring of ATM withdrawals and purchases at such businesses.

In Indiana, signs are posted at ATMs and check-out counters advising shoppers that they cannot tap into TANF funds at liquor stores, casinos, strip clubs, bingo halls and other locations.

Maine is also employing enforcement and fraud-detection tactics used in California and other states, including: watching for repeated even-dollar purchases at check-out counters, multiple card swipes in quick succession and repeated requests for replacement EBT cards.

In Washington state, TANF recipients cannot use their EBT cards to withdraw cash from machines at businesses where customers must be age 18 or older, including tattoo parlors and nightclubs. Other states have banned EBT cash withdrawals in bingo parlors, bail bondsman offices, gun stores and, not surprisingly, legal marijuana dispensaries, according to a report by the Electronic Funds Transfer Association, a trade group.

“From where we sit, I think states have done a good job of not only complying with what the law requires but also adding additional (restrictions),” said Bob Bucceri, a consultant who authored the trade group’s report. “If it were me, I would issue them a passing grade.”

But responses to that survey also revealed the crux of the challenge facing states: enforcement.

State administrators reported problems with monitoring compliance with the law and keeping track of all of the ATMs used by program participants. Further complicating matters, the state agencies charged with investigating welfare fraud – typically housed within a Department of Health and Human Services, like in Maine – do not have working relationships with the liquor stores, gambling halls or strip clubs targeted by the new restrictions on EBT card usage.

And then there is the issue of scale. Using Colorado as an example, Bucceri’s report noted that the state has an estimated 300,000 liquor stores and bars that would be regulated by the federal law.

“The law would require the state to ensure compliance at all of them,” reads the report. “There is no way of knowing at this point how many even have ATMs at which beneficiaries could access TANF funds. Therefore, any compliance solutions should take this issue of scope into account.”

Bucceri said members of Congress passed the law without a full understanding of how these electronic transactions and systems work.

“Congress looked at this as a very simplistic issue and passed a simple law, but it is a pretty complicated situation,” Bucceri said.

The numbers sound compelling.

Martire, the board member at the California Welfare Fraud Investigators Association, seemed skeptical that prohibiting EBT cash withdrawals at casinos or liquor stores is making a dent in that type of abuse because those determined to use TANF money to buy booze or gamble will just go to another ATM.

“My guess is it is more of an inconvenience” than a deterrent, said Martire, who is also the chief welfare fraud investigator in Mendocino County, located north of San Francisco. “I think it’s a feel-good, look-good type of thing because taxpayers don’t want to hear that their tax dollars and assistance dollars are being used in that way.”

That said, a 2009 audit showed that welfare fraud educational campaigns and investigations saved the state of California more money than they cost to run, Martire said.

“It’s a balancing act,” he said. “You have to balance access and providing benefits to clients versus the burden of looking for fraud.”